Picking “the Right” Cost Savings Project (and Avoiding “the Wrong” Ones)

Most companies could find dozens of cost cutting projects (larger companies could have hundreds) to get behind. That’s good! Yet few have enough resources or availability to pursue all -- or even most -- of them, meaning choosing the wrong projects could be a huge waste of time and a big opportunity cost. That’s bad.

Procurement needs a way to identify cost cutting opportunities and rank them from best to worst. This may be easier said than done. How should we proceed?

Understand Your Scope

Plenty of Procurement pros will jump right into a spend analysis and opportunity assessment project to find these answers. If you’ve read other articles I’ve written, you may expect me to do this as well. And we will – but first…

Let’s establish a couple important parameters that will help highlight critical projects:

• Higher-level initiatives trump small-fry problems. Solving 3-foot problems has its place (see further down by what I mean), but 30k-foot problems will have a much bigger organizational impact when it comes to savings potential.
• Cash cows trump side projects. Most companies have a few primary activities that bring in the bulk of revenue. Smaller products might be exciting and could very well turn into cash cows – but focus first on the foundations of your organization’s revenue stream.

Depending on how valued Procurement teams are as strategic resources, you may not have visibility into these points. If so, now is the time to engage senior leadership. What are their major goals? What do they want to achieve in the next one to two years? Not only will engaging leadership help paint a picture of where you should focus, but it’ll align you with initiatives top brass has a stake in – which could also help in marshaling needed resources to get the job done.

Getting the Lay of the Land

Now that we have a goal in mind, higher-level projects that support our organizations’ most important initiatives, we can analyze the data to identify opportunities. We’ll want to answer a few questions:

• Estimate Results: How much of an impact will an opportunity have? Are we targeting cost savings or cost avoidance?
• Estimate Lift: How many resources over what span of time will be required to see these results?
• Rank Opportunities: Based on the above, how does one opportunity compare to the others? Which represent the largest decrease in spend, now or future, and how does each rank in terms of ROI?

Keeping in mind that this is a marathon and not a sprint, there are times when taking on lower total savings or ROI projects is acceptable. One of Procurement’s first goals, especially if the team is working on building relationships with other teams, is to land a few highly visible quick win projects – they may not have the impact larger projects do, but they help build momentum and turn stakeholders into Procurement champions.

Change Management

Bigger, more impactful projects will inevitably touch on critical products and operational processes. These cases require proper change management to be successful:

• Identify all stakeholders that will be impacted by the change.
• Articulate how these groups will be impacted by the change (and to what degree), specifically.
• Use this information to inform a communication plan, resistance management tactics, and a training plan.

Our first goal here is to make sure all stakeholders understand not only what the change is, but why it is necessary. Our second goal is to give these stakeholders the tools and training to integrate these changes into their day-to-day activities without causing a negative impact.